Closing Stock Valuation

Originally posted by : Prince
	If closing stock is valued exclusiveof VAT, will it result in non compliance of 145A which says it should be inclusive of all taxes..?

 Including VAT and other applicable taxes in stock is most suitable method. Even though if you take VAT credit. Since there is no assurance that VAT laibility disclosed after considering credit of avaialble VAT.

Please consider point (a) along wd pt (b) which supports the method of Accounting also, hence VAT accounting forms the primary basis for calculation of Closing Stock

Hence, if we have taken the credit of VAT paid, then it shall nt remain a part of our Cost of goods manufactured.

otherwise, if we include VAT then, our profits will be overstated...

Inclusive method accounting is very complicated. Its not easy as we put a few lines.

1. While Excise duty a/c ( RG 23A P-11 ,RG 23C P-11  & PLA) Plus VAT a/c LST+CST have to be reversed in accounts as if we have not taken any credit. When we are making volume of transactions, the inclusive method calculations get complicated.

2. While valuation of inventory under inclusive method we have to add excise duty + vat. In RM valuation we may simply add the excise duty as charged in bill. But in case of finished the rate of duty will be the prevailing as at 31st March.

3. Inclusive method accounting is very complicated. If we adopt the same it will be somehow to match profit. BS also get disturbed. At the time of assessment if we see the entries in books the AO will be confused.

Thanks for information,

To conclude is it correct to say that for income tax purposes inclusive method is to be followed which will be compliance of section 145A and for maintaining books of accounts exclusive method can be followed which will be in compliance of AS 2.

Yes the above can be done. However at the time of preparation of Computation of Total Income a reconciliation statement should be prepared for valauation of stcok as per books and as per Section 145A